How to be a tax efficient landlord
Portico London estate agents have asked the experts and seasoned landlord, Richard Blanco, for 10 legitimate ways to reduce your tax bill.
1.Expense, expense, expense
The first step in making your property tax efficient is knowing what expenses you can offset.
Richard Blanco urges landlords to “religiously keep all receipts so that you can offset absolutely every expense against your profits”.
Some of the most common types of expenses include: Water rates, council tax, gas and electricity; insurance; letting agents’ fees; Legal fees; accountant’s fees; ground rents and service charges; direct costs such as phone calls, stationery and advertising for new tenants; and the associated costs of running a home office
2.Reduce your stamp duty bill
Richard advises landlords to “avoid mega stamp duty by extending or expanding your current rental property(ies). Ultimately, the more expensive the property, the greater the theoretical savings.
“The golden rule for expanding an existing property is that the uplift in value should be more than the cost of the works. We’re in a tricky market at the moment so do your sums and expect conservative price growth.”
3.Transfer your assets
According to Richard, another way to potentially cut your tax bill is to transfer your assets to your spouse as generally no capital gains tax will be payable, and if their earnings fall into a lower tax bracket you could pay less tax on the rental profits.
4.Save when you sell
If you are selling your rental property, make sure you claim all of the available relief.
Richard states: “If you’re a multi-property landlord, it’s often more tax efficient to sell one property in each tax year to take advantage of the 0% CGT band up to £11,300. Effectively this means you can make gains of up to £11,300 in a given tax year without any tax being due.
Some landlords find it is more tax efficient to manage their properties through a limited company which effectively acts as a letting agent. The Company could employ the landlord, relative or member of staff to manage the properties. It is advisable to talk to your accountant or tax adviser about this before proceeding.
6.Restructure your portfolio
You can also set up an LLP and Ltd company as a way of allowing all finance costs to be set against profits. This is complex and expensive to set up but it might be a positive way forward for landlords with larger portfolios.
Always be wary of spending a lot of money restructuring your portfolio around tax legislation. The government could change the rules in the next budget and you might then kick yourself for spending money on an expensive restructure.
7.Buy property through a company
If you’re thinking of buying property, setting up a limited company is more tax efficient in the sense that all finance costs can be set against profits. Richard urges landlords to “Beware of the extra cost of commercial mortgages. This could offset any savings you make in tax.”
Landlord and property expert Mark Lawrinson says that “A great way of cutting your interest costs is by re-mortgaging. Buy-to-let mortgage interest rates have fallen significantly in recent years, so deals currently on the market may well be substantially better than on products arranged a few years ago.”
9.Get your rental property revalued
With large increases in property prices in London, another tip is to get your rental property re-valued. This will make your lender recalculate your loan to value, and a lower loan to value means a better interest rate and a larger choice of lenders.
10.Fill the voids
If your buy-to-let property is empty for any period of time, remember that expenses such as utilities or council tax incurred can be claimed as an expense.
Rather than lose money while the property remains empty, Portico London have suggested landlords should look at short term rental options like Airbnb until they find a suitable long term tenant. According to Portico, hosts can earn up to 50% more on short term lets than long term rentals.
Portico have pointed out that they do not provide tax, legal or accounting advice, this material has been prepared for informational purposes only. They recommend everyone should consult their own tax, legal and accounting advisors before engaging in any transaction.
Full article available on https://www.portico.com